Concept explainers
Cost Data for Managerial Purposes
Imperial Devices (ID) has offered to supply the state government with one model of its security screening device at “cost plus 20 percent.” ID operates a manufacturing plant that can produce 66,000 devices per year, but it normally produces 60,000. The costs to produce 60,000 devices follow:
Based on these data, company management expects to receive $522 (= $435 × 120 percent) per monitor for those sold on this contract. After completing 500 monitors, the company sent a bill (invoice) to the government for $261,000 (= 500 monitors × $522 per monitor).
The president of the company received a call from a state auditor, who stated that the per
monitor cost should be:
Therefore, the price per monitor should be $324 (= $270 × 120 percent). The state government ignored marketing costs because the contract bypassed the usual selling channels.
Required
What price would you recommend? Why? (Note: You need not limit yourself to the costs selected by the company or by the government auditor.)
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FUNDAMENTALS OF COST ACCOUNTING W/CONNE
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- Cost Data for Managerial PurposesHaverhill Electronics (HE) has offered to supply the county government with one model of its security screening device at “cost plus 20 percent.” HE operates a manufacturing plant that can produce 22,000 devices per year, but it normally produces 20,000. The costs to produce 20,000 devices follow. Total Cost Cost perDeviceProduction costs: Materials $ 1,000,000 $ 50Labor 2,000,000 100Supplies and other costs that will vary with production 600,000 30Indirect cost that will not vary with production 600,000 30Variable marketing costs 400,000 20Administrative costs (will not vary with production) 1,200,000 60Totals $ 5,800,000 $290Based on these data, company management expects to receive $348 (= $290 × 120 percent) per device for those sold on this contract. After completing 200 devices, the company sent a bill (invoice) to the government for $69,600 (= 200 devices × $348 per device).The president…arrow_forwardHaverhill Electronics (HE) has offered to supply the county government with one model of its security screening device at "cost plus 25 percent." HE operates a manufacturing plant that can produce 22.000 devices per year, but it normally produces 20,000. The costs to produce 20.000 devices follow. Production costs: Materials Labor Supplies and other costs that will vary with production Indirect cost that will not vary with production Variable marketing costs Administrative costs (will not vary with production) Totals Materials Labor Supplies and other costs that will vary with production Cost per Device Total Cost $ 3,800,000.00 4,800,000.00 1,440,000.00 1,440,000.00 680,000.00 15,040,000.00 27,200,000.00 $ 1,360.00 Based on these data, company management expects to receive $1,700.00 (= $1,360.00x 125 percent) per device for those sold on this contract. After completing 200 devices, the company sent a bill (invoice) to the government for $27,200,000 (= 200 devices x $1,700.00 per…arrow_forwardAs the newly appointed Controller of Lynbrook, Inc. you have been asked to evaluate several scenarios that management is considering to improve the overall profitability of the company. Lynbrook manufactures and sells a product called a Wren, its only product. The company normally produces and sells 60,000 Wrens each year at a selling price of $32 per unit. The company's unit costs at this level of activity are included below: Direct materials $10.00 Direct labor 4.50 Variable manufacturing 2.30 overhead Fixed manufacturing overhead 5.00 ($300,000 total) Variable selling expenses 1.20 Fixed selling expenses 3.50 ($210,000 total) Total cost per unit $26.50 The CFO of Lynbrook would like your response to the following three (3) independent situations to present to the management team early next week. Situation #1 Assume that Lynbrook has sufficient capacity to produce 90,000 Wrens each year without any increase in fixed manufacturing overhead costs. The company could increase its unit…arrow_forward
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